Engineering and Mining Journal - Whether the market is copper, gold, nickel, iron ore, lead/zinc, PGM, diamonds or other commodities, E&MJ takes the lead in projecting trends, following development and reporting on the most efficient operating pr
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BASE METALS Graph 5—LME three-months lead price trends, 2007-2012. (Source: LME) ing this total to some 1.2 million mt— equivalent to more than a year of U.S. demand, according to Bloomberg. Lead, with Capacity to Spare With lead usage so closely aligned to automotive battery production—some 85% of the total consumption world- wide—producers are largely dependent on the fortunes of the car industry for any buoyancy in the market. And, with much of the world's primary lead being a co- product with zinc and copper, there is lit- tle opportunity for producers to constrain their output when prices are low, as might be the case with other metals. LME lead prices (see Graph 5) reached a peak in early 2007, with a subsequent decline from an admittedly unusual near-$4,000/mt to less than $1,000 two years later. Subsequent gains have, as with zinc, tended to stabi- lize at or just above $2,000/mt since the third quarter of last year, with the market going into backwardation during the first half of 2011 before returning to normal trading thereafter. It is worth remembering, of course, that the lead market is different from that in other commodities because such a high proportion of the metal is recycled. According to one presentation at the ILZSG annual meeting last September, the lead-acid battery recycling rate in North America stands at around 98% with, presumably, other developed mar- kets also achieving a high recycling rate. The same is probably less true, however, for developing markets, which conversely have the principal growth in consumption as transport systems expand and vehicle ownership increases. 90 E&MJ; • JUNE 2012 Graph 6—LME warehouse lead stock levels, 2007-2012. (Source: LME) ILZSG data suggest that primary lead production has exceeded demand since 2008, with no sign of the market regain- ing balance this year either. As a result, world stocks (producers, consumers and exchange warehouses) have risen steadily, from around 250,000 mt in 2007 to the current position above 600,000 mt. Of this, the LME holds more than 350,000 mt, as shown in Graph 6. The Shanghai Futures Exchange is a relatively recent entrant as a lead stock-holder, its stocks having grown from nothing to around 70,000 mt over the past two years. Major Developments in Copper In March, Stockholm-based Raw Materials Group (part of IntierraRMG) made the observation that although mine and refinery copper production has con- tinued to rise, production from large-sized mines has not increased in the last 10 years. Current production growth, the company said, is the result of an increase in smaller-sized mines. That statement could, in fairness, be tempered with the rider that a number of large producers have increased capaci- ties with expansion projects, but the point remains valid: few big greenfield copper projects have come on stream during that timeframe. According to preliminary figures from the International Copper Study Group (ICSG), world primary copper production stood at 16.04 million mt in 2011, vir- tually the same as the previous year. This represented a 79% capacity utilization rate, the organization believes, with nameplate mine capacity standing at 20.3 million mt. Total refined copper production, including secondary materi- al, reached 19.65 million mt, 650,000 mt more than in 2010. The leading world producers last year included Codelco (1.79 million mt), Freeport McMoRan Copper & Gold (1.35 million mt), BHP Billiton (1.05 million mt), Xstrata (889,000 mt), Anto- fagasta (640,500 mt), Anglo American (599,000 mt), KGHM (571,000 mt) and Rio Tinto (520,000 mt). Looking first at brownfield projects, a number of the copper majors have capac- ity expansions at various stages of study or construction. Having already given approval for an upgrade there, mid-last year Anglo American and its partners began new studies into a further expan- sion at Collahuasi in northern Chile. This would increase its annual output to between 800,000 mt and 1 million mt, depending on the scale of the project, with commissioning in 2017. The Collahuasi expansions have been undertaken in parallel with those at other Anglo American operations in Chile, with the first production from its capacity increase at Los Bronces having arrived last November. Anglo is aiming to double its copper output from the mine to near 450,000 mt/y with the project. However, the company's decision to sell a 24.5% holding in Anglo American Sur (AAS) to Mitsubishi for $5.39 billion at the end of last year strained its relationship with Codelco, which has a long-standing option over a holding in AAS. Codelco itself plans to invest $4.3 bil- lion at its operations this year, with $1.15 billion targeted at construction of the Ministro Hales mine and $400 million at El Teniente. More than $230 million will www.e-mj.com